[PART I - Financial Information](index=3&type=section&id=PART%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements reflect significant changes driven by the Peoples Bankshares acquisition and the COVID-19 pandemic [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $1.98 billion, driven by increases in loans and deposits following an acquisition Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 (unaudited) | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$1,983,204** | **$1,657,432** | | Loans, net | $1,292,896 | $1,082,318 | | Total Deposits | $1,645,789 | $1,291,250 | | **Total Liabilities** | **$1,799,939** | **$1,492,153** | | **Total Equity** | **$183,265** | **$165,279** | [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) Net income declined in Q2 and H1 2020 due to a significant increase in the provision for loan losses Key Income Statement Data (in thousands, except per share) | Metric | Q2 2020 | Q2 2019 | Six Months 2020 | Six Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $20,254 | $20,625 | $40,857 | $40,272 | | Provision for Loan Losses | $3,600 | $1,810 | $6,250 | $4,205 | | Noninterest Income | $11,828 | $8,202 | $18,576 | $15,305 | | Noninterest Expenses | $23,792 | $19,549 | $43,877 | $39,226 | | **Net Income (to Corp.)** | **$3,746** | **$5,843** | **$7,324** | **$9,614** | | **EPS (basic & diluted)** | **$1.03** | **$1.69** | **$2.01** | **$2.77** | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating and investing activities increased significantly, while financing activities provided substantial cash inflow Six Months Ended June 30 Cash Flow Summary (in thousands) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(66,755) | $(27,512) | | Net Cash Used in Investing Activities | $(121,774) | $(17,395) | | Net Cash Provided by Financing Activities | $103,396 | $24,549 | | **Net Decrease in Cash** | **$(85,133)** | **$(20,358)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Key disclosures detail the financial impact of the COVID-19 pandemic and the acquisition of Peoples Bankshares - The COVID-19 pandemic has caused significant economic disruption, and estimates for the **allowance for loan losses** at June 30, 2020, include expected losses related to the pandemic[35](index=35&type=chunk) - On January 1, 2020, the Corporation completed the acquisition of Peoples Bankshares, Incorporated for an aggregate purchase price of **$22.19 million** in cash and stock, resulting in **goodwill of $10.77 million**[40](index=40&type=chunk)[55](index=55&type=chunk)[59](index=59&type=chunk) - Beginning in April 2020, the Corporation originated loans under the **Paycheck Protection Program (PPP)**, which are fully guaranteed by the SBA[47](index=47&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=50&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income declined due to higher loan loss provisions and merger costs, partially offset by strong mortgage banking performance [Overview](index=50&type=section&id=Overview) Net income and EPS declined in Q2 and H1 2020, impacted by loan loss provisions and merger expenses Financial Performance Measures | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in millions) | $3.7 | $5.8 | $7.4 | $9.6 | | EPS | $1.03 | $1.69 | $2.01 | $2.77 | | Annualized ROE | 8.41% | 15.07% | 8.34% | 12.54% | | Annualized ROA | 0.77% | 1.51% | 0.78% | 1.26% | - **Adjusted net income**, excluding one-time items, was **$4.0 million ($1.11/share)** for Q2 2020 and **$8.4 million ($2.30/share)** for the first six months of 2020[176](index=176&type=chunk) [Impact of and Response to the COVID-19 Pandemic](index=52&type=section&id=Impact%20of%20and%20Response%20to%20the%20COVID-19%20Pandemic) The Corporation identifies key pandemic-related risks and outlines its response, including PPP loans and payment deferrals - The Corporation recorded additional provisions for loan losses of approximately **$3.5 million in Q2 2020** and **$5.5 million in H1 2020** due to expected asset quality deterioration from the pandemic[183](index=183&type=chunk) - As of June 30, 2020, the company originated **1,210 PPP loans** with an aggregate principal of **$88.9 million**[190](index=190&type=chunk) - The company provided payment deferrals or interest-only periods on **200 loans** with aggregate balances of **$94.9 million** as of June 30, 2020[190](index=190&type=chunk) [Results of Operations](index=64&type=section&id=Results%20of%20Operations) Net interest margin decreased while noninterest income grew significantly, driven by record mortgage banking activity - Annualized **net interest margin decreased by 114 basis points to 4.61%** for Q2 2020 compared to Q2 2019, primarily due to lower average yields on loans[232](index=232&type=chunk) - Total noninterest income **increased by $3.6 million (44.2%)** in Q2 2020, largely due to higher gains on sales of loans and mortgage banking fee income from record loan production[246](index=246&type=chunk) - Total noninterest expenses **increased by $4.2 million (21.7%)** in Q2 2020, driven by merger-related expenses, assumption of operating costs from the Peoples acquisition, and higher compensation tied to mortgage volume[253](index=253&type=chunk) [Asset Quality](index=77&type=section&id=Asset%20Quality) The provision for loan losses increased, and the allowance for loan losses grew to reflect pandemic-related economic impacts Allowance for Loan Losses Activity (in thousands) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Beginning Balance | $33,298 | $33,589 | $32,873 | $34,023 | | Provision for Loan Losses | $3,600 | $1,810 | $6,250 | $4,205 | | Net Charge-offs | $(804) | $(1,998) | $(3,029) | $(4,827) | | **Ending Balance** | **$36,094** | **$33,401** | **$36,094** | **$33,401** | - The consumer finance segment's allowance for loan losses as a percentage of loans **increased to 7.52%** at June 30, 2020, from 6.96% at December 31, 2019, reflecting probable losses from the COVID-19 pandemic[288](index=288&type=chunk) [Financial Condition](index=88&type=section&id=Financial%20Condition) Total assets, loans, and deposits grew substantially, primarily due to the Peoples acquisition and PPP loan origination - **Total assets increased by $325.8 million** since December 31, 2019, to **$2.0 billion**, primarily due to the Peoples acquisition ($190.6 million in assets) and deposit growth[297](index=297&type=chunk) - Total loans held for investment grew to **$1.33 billion**, with commercial, financial, and agricultural loans making up **51% of the portfolio**[300](index=300&type=chunk) - **Deposits increased by $354.5 million to $1.65 billion**, driven by the Peoples acquisition ($171.8 million) and organic growth influenced by PPP loans and government stimulus[318](index=318&type=chunk) [Liquidity and Capital Resources](index=94&type=section&id=Liquidity%20and%20Capital%20Resources) The Corporation maintains a strong liquidity position and remains well-capitalized, with all ratios exceeding regulatory minimums - Liquid assets, including cash and non-pledged securities, totaled **$204.85 million** at June 30, 2020[331](index=331&type=chunk) Regulatory Capital Ratios (C&F Bank) - June 30, 2020 | Ratio | Actual | Minimum Requirement | | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 13.5% | 8.0% | | Tier 1 Capital (to Risk-Weighted Assets) | 12.3% | 6.0% | | Common Equity Tier 1 Capital | 12.3% | 4.5% | | Tier 1 Capital (to Average Assets) | 9.6% | 4.0% | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=102&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk disclosures remain unchanged from the Annual Report on Form 10-K for the year ended December 31, 2019 - There have been **no significant changes** to the market risk disclosures since the 2019 Form 10-K[355](index=355&type=chunk) [Item 4. Controls and Procedures](index=102&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were **effective** as of June 30, 2020[356](index=356&type=chunk) - The integration of Peoples' legacy systems and the shift to remote work due to COVID-19 **did not materially affect** the company's internal control over financial reporting[359](index=359&type=chunk)[360](index=360&type=chunk) [PART II - Other Information](index=104&type=section&id=PART%20II%20-%20Other%20Information) [Item 1A. Risk Factors](index=104&type=section&id=Item%201A.%20Risk%20Factors) A new risk factor details the significant adverse effects of the COVID-19 pandemic on the economy and financial markets - A **new risk factor** has been added detailing the actual and potential adverse effects of the COVID-19 pandemic on the Corporation's results of operations and financial condition[363](index=363&type=chunk) - Consequences of the pandemic may include market volatility, lower interest rates, increased unemployment, **significant delinquencies and credit losses**, and potential impairment of assets like securities and goodwill[365](index=365&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=106&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The $5.0 million share repurchase program expired in May 2020 and was not renewed, with no repurchases in Q2 2020 - The share repurchase program **expired on May 31, 2020**, and has not been renewed[370](index=370&type=chunk)[371](index=371&type=chunk) [Item 6. Exhibits](index=107&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including agreements, certifications, and XBRL data

Table of Contents or UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended March 31, 2020 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission File Number 000-23423 C&F FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Vir ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2019 or ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission file number 000-23423 C&F FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) Virginia ...

Table of Contents or UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2019 ☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _________ to _________ Commission File Number 000-23423 C&F FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) ...

[PART I - Financial Information](index=2&type=section&id=PART%20I%20-%20Financial%20Information) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for C&F Financial Corporation as of and for the periods ended June 30, 2019, and December 31, 2018 [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $1.568 billion at June 30, 2019, primarily due to loan growth, with corresponding increases in liabilities and equity Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$1,567,996** | **$1,521,411** | | Total cash and cash equivalents | $94,655 | $115,013 | | Loans held for sale, at fair value | $89,185 | $41,895 | | Loans, net | $1,056,934 | $1,028,097 | | **Total Liabilities** | **$1,408,645** | **$1,369,453** | | Total deposits | $1,210,209 | $1,181,661 | | **Total Equity** | **$159,351** | **$151,958** | [Consolidated Statements of Income](index=4&type=section&id=Consolidated%20Statements%20of%20Income) Net income attributable to the Corporation increased to $9.61 million for H1 2019, driven by higher net interest and noninterest income Statement of Income Highlights (in thousands, except per share data) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Interest Income | $40,272 | $40,155 | | Provision for loan losses | $4,205 | $5,300 | | Noninterest Income | $15,305 | $13,687 | | Noninterest Expenses | $39,226 | $37,300 | | **Net Income Attributable to C&F** | **$9,614** | **$8,962** | | **Net income per share - diluted** | **$2.77** | **$2.56** | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) Comprehensive income attributable to the Corporation significantly increased to $12.17 million for H1 2019, driven by positive other comprehensive income Comprehensive Income Highlights (in thousands) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net Income | $9,613 | $8,962 | | Other comprehensive income (loss), net of tax | $2,552 | $(2,310) | | **Comprehensive income attributable to C&F** | **$12,166** | **$6,652** | [Consolidated Statements of Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Equity) Total equity increased to $159.4 million by June 30, 2019, driven by net income and comprehensive income, partially offset by dividends and repurchases - Key changes in equity for the six months ended June 30, 2019 include: net income of **$9.6 million**, other comprehensive income of **$2.6 million**, cash dividends of **$2.6 million** (**$0.74 per share**), and common stock repurchases of **$3.5 million**[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash and cash equivalents decreased by $20.4 million for H1 2019, primarily due to cash used in operating and investing activities Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(29,612) | $15,535 | | Net cash used in investing activities | $(15,785) | $(16,972) | | Net cash provided by financing activities | $25,039 | $17,757 | | **Net (decrease) increase in cash** | **$(20,358)** | **$16,320** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section details accounting policies, financial statement components, and the impact of new accounting standards like ASC 842 and the upcoming ASC 326 - On January 1, 2019, the Corporation adopted ASC 842, "Leases," resulting in the recognition of a lease liability of approximately **$3.14 million** and a corresponding right-of-use asset[38](index=38&type=chunk)[42](index=42&type=chunk) - The Corporation is preparing for the adoption of ASC 326, "Financial Instruments – Credit Losses," which will introduce an expected loss model and is anticipated to significantly change the allowance for credit losses and potentially reduce shareholders' equity[43](index=43&type=chunk)[44](index=44&type=chunk) - The Corporation operates in three principal business segments: retail banking, mortgage banking, and consumer finance, with inter-segment transactions eliminated in consolidation[132](index=132&type=chunk)[137](index=137&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the Corporation's financial performance, condition, and key business trends, highlighting net income growth driven by mortgage and retail banking segments [Overview](index=45&type=section&id=Overview) Net income increased to $9.6 million for H1 2019, driven by retail and mortgage banking, despite a decline in consumer finance segment income Key Financial Performance Measures (H1 2019 vs H1 2018) | Metric | H1 2019 | H1 2018 | | :--- | :--- | :--- | | Net Income | $9.6 million | $9.0 million | | Diluted EPS | $2.77 | $2.56 | | Annualized ROE | 12.54% | 12.62% | | Annualized ROA | 1.26% | 1.19% | - Retail Banking net income rose to **$5.4 million** in H1 2019 from **$4.8 million** in H1 2018, driven by higher interest income from improved PCI loan performance and higher average loans[187](index=187&type=chunk)[188](index=188&type=chunk) - Mortgage Banking net income increased to **$1.7 million** in H1 2019 from **$1.2 million** in H1 2018, fueled by a surge in mortgage loan originations to **$385.6 million** from **$347.6 million**[193](index=193&type=chunk)[194](index=194&type=chunk) - Consumer Finance net income decreased to **$3.2 million** in H1 2019 from **$3.7 million** in H1 2018, due to lower loan yields and higher borrowing costs, partially offset by a **$1.2 million** decline in the provision for loan losses[195](index=195&type=chunk)[196](index=196&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) Net interest income remained stable at $40.6 million for H1 2019, while noninterest income grew 11.8% and noninterest expenses rose 5.2% Net Interest Margin Analysis (Annualized) | Period | Net Interest Margin | Yield on Earning Assets | Cost of Interest-Bearing Liabilities | | :--- | :--- | :--- | :--- | | Q2 2019 | 5.75% | 6.76% | 1.35% | | Q2 2018 | 5.69% | 6.44% | 0.99% | | H1 2019 | 5.71% | 6.68% | 1.30% | | H1 2018 | 5.77% | 6.51% | 0.97% | - Total noninterest income increased by **$1.6 million** (**11.8%**) in H1 2019 compared to H1 2018, mainly due to higher gains on sales of loans at the mortgage banking segment and unrealized gains related to the non-qualified deferred compensation plan[222](index=222&type=chunk) - Total noninterest expenses increased by **$1.9 million** (**5.2%**) in H1 2019, primarily from higher salaries and benefits expense linked to the deferred compensation plan and increased operating costs at the retail banking segment for technology and personnel[225](index=225&type=chunk) [Asset Quality](index=57&type=section&id=Asset%20Quality) Asset quality remained strong with the allowance for loan losses decreasing to $33.4 million and improved net charge-off ratios in consumer finance Allowance for Loan Losses Activity (in thousands) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Beginning Balance | $34,023 | $35,726 | | Provision for loan losses | $4,205 | $5,300 | | Net loans charged off | $(4,827) | $(5,633) | | **Ending Balance** | **$33,401** | **$35,393** | - The consumer finance segment's annualized net charge-off ratio improved to **3.15%** in H1 2019 from **3.85%** in H1 2018, due to purchasing automobile loan contracts with higher credit metrics since 2016[197](index=197&type=chunk)[231](index=231&type=chunk) - Retail banking nonperforming assets decreased to **$1.3 million** at June 30, 2019, from **$1.7 million** at December 31, 2018, consisting mainly of **$991,000** in nonaccrual loans[248](index=248&type=chunk)[251](index=251&type=chunk) - Total Troubled Debt Restructurings (TDRs) decreased to **$4.45 million** at June 30, 2019, from **$5.45 million** at December 31, 2018[258](index=258&type=chunk)[260](index=260&type=chunk) [Financial Condition](index=63&type=section&id=Financial%20Condition) Total assets grew to $1.6 billion by June 30, 2019, driven by loan growth, while deposits increased and investment securities decreased - Total loans held for investment grew to **$1.09 billion** at June 30, 2019, from **$1.06 billion** at year-end 2018, with the commercial, financial, and agricultural category making up **44%** of the portfolio[266](index=266&type=chunk) - Total deposits increased by **$28.5 million** in the first half of 2019, primarily due to a **$50.0 million** increase in time deposits, partially offset by a **$32.7 million** decrease in savings and interest-bearing demand deposits[273](index=273&type=chunk) - The Corporation uses interest rate swaps to manage risk, including cash flow hedges on **$25.0 million** of trust preferred capital notes and back-to-back swaps with commercial loan customers with a total notional amount of **$125.6 million**[279](index=279&type=chunk)[280](index=280&type=chunk) [Liquidity and Capital Resources](index=66&type=section&id=Liquidity%20and%20Capital%20Resources) The Corporation maintains strong liquidity and capital, with C&F Bank exceeding regulatory capital ratios and continuing its share repurchase program C&F Bank Regulatory Capital Ratios (June 30, 2019) | Ratio | Actual | Minimum Requirement | To Be Well Capitalized | | :--- | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 14.4% | 8.0% | 10.0% | | Tier 1 Capital (to Risk-Weighted Assets) | 13.2% | 6.0% | 8.0% | | Common Equity Tier 1 Capital | 13.2% | 4.5% | 6.5% | | Tier 1 Capital (to Average Assets) | 11.0% | 4.0% | 5.0% | - At June 30, 2019, the Corporation had total available funding capacity of **$297.7 million** from sources including FHLB, the Federal Reserve Bank, and a revolving bank line of credit[287](index=287&type=chunk)[288](index=288&type=chunk) - A new **$5.0 million** share repurchase program was authorized effective June 1, 2019, through May 31, 2020, with **$4.4 million** remaining available as of June 30, 2019[201](index=201&type=chunk)[295](index=295&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=69&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) There have been no significant changes in the Corporation's quantitative and qualitative market risk disclosures since the 2018 Annual Report on Form 10-K - There have been no significant changes in market risk disclosures since the 2018 Form 10-K[297](index=297&type=chunk) [Item 4. Controls and Procedures](index=69&type=section&id=Controls%20and%20Procedures) Management concluded that the Corporation's disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of June 30, 2019[298](index=298&type=chunk) - There were no material changes to the Corporation's internal control over financial reporting during the second quarter of 2019[301](index=301&type=chunk) [PART II - Other Information](index=71&type=section&id=PART%20II%20-%20Other%20Information) [Item 1A. Risk Factors](index=71&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes in the Corporation's risk factors since those disclosed in the 2018 Annual Report on Form 10-K - There have been no material changes in risk factors since the 2018 Form 10-K[303](index=303&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=71&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q2 2019, the Corporation repurchased 32,980 shares of common stock at an average price of $49.41, with $4.4 million remaining for future repurchases Issuer Purchases of Equity Securities (Q2 2019) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2019 | 6,262 | $50.74 | | May 2019 | 14,618 | $48.41 | | June 2019 | 12,100 | $49.93 | | **Total Q2** | **32,980** | **$49.41** | - The Corporation has an authorized repurchase program for up to **$5.0 million** of its common stock, effective from June 1, 2019, to May 31, 2020[304](index=304&type=chunk) [Item 6. Exhibits](index=72&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and XBRL data files, incorporating previously filed documents by reference - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32) and XBRL interactive data files (101 series)[307](index=307&type=chunk)

[PART I - Financial Information](index=3&type=section&id=PART%20I%20-%20Financial%20Information) This section presents C&F Financial Corporation's unaudited consolidated financial statements for Q1 2019, including balance sheets, income statements, and cash flows, with total assets reaching $1.55 billion and net income at $3.8 million [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section provides the unaudited consolidated financial statements for C&F Financial Corporation, detailing balance sheets, income, comprehensive income, equity, and cash flows for Q1 2019 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, highlighting total assets, liabilities, and equity as of March 31, 2019, and December 31, 2018 Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | **Total Assets** | **$1,549,360** | **$1,521,411** | | Loans, net | $1,042,052 | $1,028,097 | | Total cash and cash equivalents | $137,451 | $115,013 | | **Total Liabilities** | **$1,394,460** | **$1,369,453** | | Total deposits | $1,202,194 | $1,181,661 | | **Total Equity** | **$154,900** | **$151,958** | - Total assets increased by **$27.9 million** from December 31, 2018 to March 31, 2019, primarily driven by growth in loans and cash equivalents, funded by an increase in deposits[12](index=12&type=chunk) [Consolidated Statements of Income](index=5&type=section&id=Consolidated%20Statements%20of%20Income) This section details the company's financial performance, including net interest income, noninterest income, expenses, and net income for the three months ended March 31, 2019 and 2018 Consolidated Income Statement Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net Interest Income | $19,647 | $20,168 | | Provision for loan losses | $2,395 | $3,300 | | Noninterest Income | $7,103 | $6,446 | | Noninterest Expenses | $19,677 | $18,539 | | **Net Income** | **$3,771** | **$3,892** | | **Net income per share - basic and diluted** | **$1.08** | **$1.11** | - Net income decreased by **3.1%** year-over-year, primarily due to a slight decline in net interest income and higher noninterest expenses, which was partially offset by a lower provision for loan losses and higher noninterest income[14](index=14&type=chunk) [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2019 and 2018 Consolidated Cash Flow Highlights (in thousands) | Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $11,797 | $22,109 | | Net cash used in investing activities | ($9,426) | ($5,970) | | Net cash provided by financing activities | $20,067 | $12,486 | | **Net increase in cash and cash equivalents** | **$22,438** | **$28,625** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, including information on subsidiaries, accounting policies, and segment performance - The Corporation operates through its subsidiary, Citizens and Farmers Bank (C&F Bank), which has five main subsidiaries: C&F Mortgage, C&F Finance, C&F Wealth Management, C&F Insurance Services, and CVB Title Services[31](index=31&type=chunk) - On January 1, 2019, the Corporation adopted the new lease accounting standard (ASC 842), resulting in the recognition of a lease liability of approximately **$3.14 million** and a corresponding right-of-use asset[37](index=37&type=chunk)[40](index=40&type=chunk) Loan Portfolio Composition (in thousands) | Loan Type | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Real estate – residential mortgage | $183,697 | $184,901 | | Commercial, financial and agricultural | $459,820 | $455,935 | | Consumer finance | $299,592 | $296,154 | | **Total Loans (Gross)** | **$1,075,641** | **$1,062,120** | Business Segment Net Income (Loss) (in thousands) | Segment | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Retail Banking | $2,290 | $2,312 | | Mortgage Banking | $567 | $435 | | Consumer Finance | $1,285 | $1,498 | | Other | ($371) | ($353) | | **Consolidated Net Income** | **$3,771** | **$3,892** | [Management's Discussion and Analysis (MD&A)](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes Q1 2019 financial condition and results, highlighting a slight net income decrease to $3.8 million due to net interest margin compression, partially offset by lower loan loss provisions [Overview](index=43&type=section&id=Overview) This section provides a high-level summary of the company's financial performance and key segment contributions for the first quarter of 2019 Key Financial Performance Measures | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income | $3.8 million | $3.9 million | | Diluted EPS | $1.08 | $1.11 | | Annualized ROE | 9.96% | 11.05% | | Annualized ROA | 1.00% | 1.04% | - Retail Banking net income was flat at **$2.3 million**, as higher loan income was offset by increased deposit costs and operating expenses[172](index=172&type=chunk)[173](index=173&type=chunk) - Mortgage Banking net income increased to **$567,000** from $435,000, driven by operational efficiencies despite lower loan production[177](index=177&type=chunk)[178](index=178&type=chunk) - Consumer Finance net income decreased to **$1.3 million** from $1.5 million, as lower loan yields and higher borrowing costs were partially offset by a **$905,000** decline in the provision for loan losses[179](index=179&type=chunk)[180](index=180&type=chunk) [Results of Operations](index=47&type=section&id=Results%20of%20Operations) This section details the drivers of net interest income, noninterest income, and noninterest expenses, explaining changes in profitability for the quarter - Net interest income (taxable-equivalent) decreased to **$19.8 million** in Q1 2019 from $20.4 million in Q1 2018, with the annualized net interest margin compressing by **19 basis points** to **5.66%** due to a **29 basis point** increase in the cost of interest-bearing liabilities[194](index=194&type=chunk) - The overall yield on average loans decreased by **25 basis points** to **7.72%**, influenced by a shift in loan portfolio composition, competition in the consumer finance segment, and lower accretion from PCI loans[196](index=196&type=chunk) - Total noninterest income increased by **10.2%** to **$7.1 million**, mainly due to **$1.0 million** in unrealized gains related to the non-qualified deferred compensation plan, which offset lower gains on loan sales[206](index=206&type=chunk) - Total noninterest expenses rose **6.1%** to **$19.7 million**, driven by higher compensation expense tied to the deferred compensation plan and increased operating costs in the retail banking segment for technology and personnel[207](index=207&type=chunk) [Asset Quality](index=51&type=section&id=Asset%20Quality) This section assesses the quality of the loan portfolio, focusing on the provision for loan losses, net charge-off ratios, and nonperforming assets - The provision for loan losses was **$2.4 million** for Q1 2019, down from $3.3 million in Q1 2018, entirely attributed to the Consumer Finance segment[213](index=213&type=chunk) - The Consumer Finance segment's annualized net charge-off ratio improved significantly, decreasing to **3.79%** in Q1 2019 from 4.69% in Q1 2018, reflecting better credit quality in the auto loan portfolio[181](index=181&type=chunk)[213](index=213&type=chunk) - Total nonperforming assets in the Retail Banking segment remained low at **$1.8 million** (**0.24%** of total loans and OREO) as of March 31, 2019[231](index=231&type=chunk)[234](index=234&type=chunk) - The allowance for loan losses in the Consumer Finance segment as a percentage of its total loans decreased to **7.54%** at March 31, 2019, from 7.77% at year-end 2018, due to lower charge-offs and a portfolio shift towards higher-quality marine and RV loans[237](index=237&type=chunk) [Financial Condition, Liquidity and Capital Resources](index=57&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) This section reviews the company's balance sheet growth, liquidity position, and regulatory capital ratios, confirming its well-capitalized status - Total assets grew by **$27.9 million** during the quarter to **$1.5 billion**, driven by loan growth funded by a **$20.5 million** increase in deposits[246](index=246&type=chunk)[257](index=257&type=chunk) - Liquid assets (cash, interest-bearing deposits, and non-pledged securities) totaled **$243.1 million** at March 31, 2019, up from $220.1 million at year-end 2018[269](index=269&type=chunk) C&F Bank Regulatory Capital Ratios (March 31, 2019) | Ratio | Actual | Minimum Requirement | Well-Capitalized Minimum | | :--- | :--- | :--- | :--- | | Total Capital (to Risk-Weighted Assets) | 14.7% | 8.0% | 10.0% | | Tier 1 Capital (to Risk-Weighted Assets) | 13.4% | 6.0% | 8.0% | | Common Equity Tier 1 Capital | 13.4% | 4.5% | 6.5% | | Tier 1 Capital (to Average Assets) | 11.0% | 4.0% | 5.0% | - As of March 31, 2019, C&F Bank exceeded all regulatory capital requirements to be considered well-capitalized, including the fully phased-in capital conservation buffer of **2.5%**[277](index=277&type=chunk)[280](index=280&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=61&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section confirms no significant changes in quantitative and qualitative disclosures regarding market risk compared to the prior annual report - No significant changes in market risk disclosures were reported for the quarter[283](index=283&type=chunk) [Controls and Procedures](index=61&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, affirmed the effectiveness of disclosure controls and procedures, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the Corporation's disclosure controls and procedures were effective as of the end of the reporting period[284](index=284&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal controls[287](index=287&type=chunk) [PART II - Other Information](index=63&type=section&id=PART%20II%20-%20Other%20Information) This section provides additional information including risk factors, equity security sales, and a list of exhibits filed with the report [Risk Factors](index=63&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to the company's risk factors since the previous annual report on Form 10-K - No material changes to the risk factors disclosed in the 2018 Form 10-K were reported[289](index=289&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=63&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase program, including the number of shares bought back and the remaining authorization for Q1 2019 Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Approx. Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | Jan 2019 | 17,829 | $51.78 | 13,850 | $3.17M | | Feb 2019 | 10,400 | $50.22 | 10,400 | $2.65M | | Mar 2019 | 8,819 | $52.01 | 8,157 | $2.23M | | **Total** | **37,048** | **$51.40** | **32,407** | **$2.23M** | - The share repurchase program was reauthorized in April 2018 for up to **$5.0 million** and is effective through May 31, 2019 As of March 31, 2019, **$2.2 million** remained available for repurchase[290](index=290&type=chunk) [Exhibits](index=64&type=section&id=Item%206.%20Exhibits) This section lists all exhibits accompanying the Form 10-Q, including loan agreement amendments and required CEO/CFO certifications - The exhibits filed with this report include an amendment to a loan and security agreement with C&F Finance Company, CEO/CFO certifications pursuant to Rule 13a-14(a) and Section 1350, and XBRL data files[293](index=293&type=chunk)

PART I [Business](index=3&type=section&id=ITEM%201.%20BUSINESS) C&F Financial Corporation operates three financial segments: Retail Banking, Mortgage Banking, and Consumer Finance, providing services in Virginia under extensive competition and regulation [General Overview and Business Segments](index=3&type=section&id=General%20Overview%20and%20Business%20Segments) C&F Financial Corporation operates through Retail Banking, Mortgage Banking, and Consumer Finance segments, employing 634 full-time equivalent staff as of December 31, 2018 - The Corporation operates through three main business segments: Retail Banking via C&F Bank, Mortgage Banking via C&F Mortgage Corporation, and Consumer Finance via C&F Finance Company[10](index=10&type=chunk) - As of December 31, 2018, the company had **634 full-time equivalent employees**[19](index=19&type=chunk) Segment Financials (Year-End 2018) | Segment | Total Assets (in billions) | Net Income (in millions) | | :--- | :--- | :--- | | Retail Banking | $1.4 | $10.6 | | Mortgage Banking | $56.1 | $1.9 | | Consumer Finance | $297.6 | $6.7 | [Competition](index=7&type=section&id=Competition) The Corporation faces intense competition across all segments, with each business unit employing distinct strategies to compete against diverse financial institutions - The Retail Banking segment competes in the highly competitive Hampton to Charlottesville corridor against large banks by focusing on customer service and relationships with individuals and small-to-medium businesses[20](index=20&type=chunk)[21](index=21&type=chunk)[22](index=22&type=chunk) - The Mortgage Banking segment faces competition from national and regional banks, credit unions, and internet lenders, navigating a stringent regulatory environment by focusing on operational efficiency, technology, and attracting top talent[24](index=24&type=chunk)[27](index=27&type=chunk) - The Consumer Finance segment operates in a highly competitive non-prime auto finance market, competing against captive finance affiliates and other lenders by providing superior dealer service, building strong relationships, and offering flexible terms[29](index=29&type=chunk)[31](index=31&type=chunk) [Regulation and Supervision](index=9&type=section&id=Regulation%20and%20Supervision) The Corporation and its subsidiaries are extensively regulated by federal and state authorities, with key reforms from the Dodd-Frank Act and EGRRCPA impacting capital, consumer protection, and operations - The company is subject to extensive federal and state regulation, with significant reforms stemming from the Dodd-Frank Act (2010) and the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA) of 2018[35](index=35&type=chunk)[36](index=36&type=chunk) - Under the Basel III framework, the Bank is required to maintain minimum capital ratios, including a **CET1 ratio of 7.0%**, **Tier 1 ratio of 8.5%**, and **Total Capital ratio of 10.5%**, all inclusive of the fully phased-in capital conservation buffer[46](index=46&type=chunk) - Due to the EGRRCPA and a subsequent Federal Reserve interim final rule in August 2018, the Corporation, with assets under **$3 billion**, is treated as a small bank holding company and is no longer subject to consolidated regulatory capital requirements, though the Bank remains subject to them[51](index=51&type=chunk)[52](index=52&type=chunk) - The Dodd-Frank Act created the Consumer Financial Protection Bureau (CFPB), which centralizes consumer financial protection; while the CFPB directly supervises institutions with over **$10 billion** in assets, its rules and precedents can influence how regulators apply consumer protection laws to smaller institutions like C&F Bank[56](index=56&type=chunk)[76](index=76&type=chunk) - As of December 31, 2018, C&F Bank was considered "**well capitalized**" under the Prompt Corrective Action framework[85](index=85&type=chunk) [Risk Factors](index=27&type=section&id=ITEM%201A.%20RISK%20FACTORS) The Corporation faces diverse risks including interest rate volatility, credit concentration, competition, secondary mortgage market weakness, cybersecurity threats, and evolving regulatory burdens - The Corporation's profitability is substantially dependent on its net interest margin, which is vulnerable to fluctuations in interest rates; rising short-term rates combined with low long-term rates are expected to continue pressuring the margin[103](index=103&type=chunk)[104](index=104&type=chunk) - A significant portion of the loan portfolio is concentrated in commercial loans (**43%**) and non-prime consumer finance loans (**27%**), which carry higher credit risk than residential loans, especially during economic downturns[112](index=112&type=chunk)[113](index=113&type=chunk) - The mortgage banking segment's income is at risk from weakness in the secondary mortgage market, potential repurchase liabilities on sold loans, and reduced origination volume in a rising interest rate environment[117](index=117&type=chunk)[118](index=118&type=chunk)[121](index=121&type=chunk) - The company is subject to significant operational and security risks, including cyber attacks, which could result in legal claims, regulatory penalties, and reputational damage; it also relies on third-party providers for key applications[133](index=133&type=chunk)[134](index=134&type=chunk)[135](index=135&type=chunk) - Extensive and changing financial regulations, particularly the Dodd-Frank Act and oversight from the CFPB, impose a significant compliance burden, increase costs, and could limit business opportunities[150](index=150&type=chunk)[153](index=153&type=chunk)[155](index=155&type=chunk) - The Corporation, as a holding company, relies almost entirely on dividends from its subsidiary, C&F Bank, for its revenue; regulatory restrictions on the Bank's ability to pay dividends could materially affect the Corporation's ability to service debt and pay dividends to its own shareholders[165](index=165&type=chunk)[167](index=167&type=chunk) [Unresolved Staff Comments](index=41&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The Corporation reports that it has no unresolved comments from the staff of the Securities and Exchange Commission (SEC) - The Corporation has no unresolved comments from the SEC staff[168](index=168&type=chunk) [Properties](index=41&type=section&id=ITEM%202.%20PROPERTIES) C&F Bank owns the Corporation's main office, operations center, and 22 retail branches, with additional leased offices for C&F Mortgage and C&F Finance, all deemed adequate for operations - C&F Bank owns its main office in West Point, VA, an **85,000 sq. ft.** operations center in Toano, VA, and a **25,000 sq. ft.** building in Midlothian, VA housing both a bank branch and C&F Mortgage's main offices[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk) - In addition to its main properties, C&F Bank owns **22 retail branch locations** and leases two, while C&F Mortgage leases **14 loan production offices** across Virginia, Maryland, North Carolina, South Carolina, and West Virginia[171](index=171&type=chunk)[172](index=172&type=chunk) [Legal Proceedings](index=41&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The Corporation and its subsidiaries may be involved in ordinary course litigation, which management believes will not have a material adverse effect - The Corporation states that any litigation it is involved in arises from the ordinary course of business and is not expected to have a material adverse effect[175](index=175&type=chunk) [Mine Safety Disclosures](index=41&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) The Corporation reports that there are no mine safety disclosures applicable to its operations - None[176](index=176&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=42&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) The Corporation's common stock trades on NASDAQ under 'CFFI'; a **$5.0 million** share repurchase program was reauthorized in April 2018, with **$3.9 million** remaining available as of December 31, 2018 - The Corporation's common stock is listed on the NASDAQ Global Select Market under the symbol "**CFFI**"[178](index=178&type=chunk) - A share repurchase program was reauthorized in April 2018 for up to **$5.0 million**, expiring May 31, 2019; as of December 31, 2018, **$3.9 million** remained available for repurchase[179](index=179&type=chunk) Share Repurchases (Q4 2018) | Period | Total Shares Purchased | Average Price Paid per Share (in USD) | Shares Purchased as Part of Program | | :--- | :--- | :--- | :--- | | Oct 2018 | 0 | N/A | 0 | | Nov 2018 | 14,283 | $52.22 | 14,283 | | Dec 2018 | 10,984 | $50.87 | 6,949 | | **Total** | **25,267** | **$51.63** | **21,232** | [Selected Financial Data](index=44&type=section&id=ITEM%206.%20SELECTED%20FINANCIAL%20DATA) The Corporation's 2018 net income significantly increased to **$18.0 million** from **$6.6 million** in 2017 (impacted by a one-time tax expense), with diluted EPS of **$5.15** and strong ROA/ROE Key Financial Data (2017 vs. 2018) | Metric (in thousands, except per share) | 2018 | 2017 | | :--- | :--- | :--- | | Total Assets (in thousands) | $1,521,411 | $1,509,056 | | Total Loans (net) (in thousands) | $1,028,097 | $992,062 | | Total Deposits (in thousands) | $1,181,661 | $1,171,429 | | Net Income (in thousands) | $18,020 | $6,572 | | Earnings Per Share (diluted) (in USD) | $5.15 | $1.88 | | Dividends Per Share (in USD) | $1.41 | $1.33 | Key Performance Ratios (2017 vs. 2018) | Ratio | 2018 | 2017 | | :--- | :--- | :--- | | Net Interest Margin (in %) | 5.80% | 5.99% | | Return on Average Assets (in %) | 1.19% | 0.45% | | Return on Average Equity (in %) | 12.40% | 4.58% | - The 2017 net income was significantly impacted by a one-time remeasurement of the net deferred tax asset due to the Tax Cuts and Jobs Act of 2017, which resulted in an additional income tax expense of **$6.6 million**[183](index=183&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=45&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This MD&A details the Corporation's 2018 financial condition and results, highlighting a significant net income increase, segment performance, margin trends, asset quality, and a challenging 2019 outlook [Overview](index=52&type=section&id=Overview) The Corporation's 2018 net income rose to **$18.0 million** (**$5.15** per share), up from **$6.6 million** in 2017 (adjusted to **$13.2 million**), with ROA of **1.19%** and ROE of **12.40%** Financial Performance Measures (2017 vs. 2018) | Metric | 2018 | 2017 (Reported) | 2017 (Adjusted*) | | :--- | :--- | :--- | :--- | | Net Income (in millions) | $18.0M | $6.6M | $13.2M | | EPS (diluted) (in USD) | $5.15 | $1.88 | $3.79 | | ROE (in %) | 12.40% | 4.58% | 9.20% | | ROA (in %) | 1.19% | 0.45% | 0.90% | - The 2019 outlook anticipates challenges including lower accretion income, potential margin compression in retail banking, margin pressure in mortgage banking due to competition and interest rates, and continued competition and higher borrowing costs in consumer finance[214](index=214&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) [Results of Operations](index=58&type=section&id=Results%20of%20Operations) In 2018, net interest income slightly increased to **$82.3 million** but margin declined to **5.80%**; noninterest income decreased by **$1.5 million**, while noninterest expense rose by **$0.9 million**, and the effective tax rate dropped to **20.1%** - Net interest income (taxable-equivalent) increased to **$82.3 million** in 2018 from **$81.7 million** in 2017, but the net interest margin decreased by **19 basis points** to **5.80%** from **5.99%**[245](index=245&type=chunk) - Total noninterest income decreased by **$1.5 million** (**5.4%**) in 2018, primarily due to lower gains on sales of mortgage loans and the non-recurrence of a **$1.3 million** gain on assets held in a rabbi trust that was recognized in 2017[267](index=267&type=chunk) - Total noninterest expenses increased by **$909,000** (**1.2%**) in 2018, driven by higher operating, data processing, and marketing costs at the retail banking segment, partially offset by lower personnel costs in the mortgage and consumer finance segments[273](index=273&type=chunk) - Income tax expense was **$4.5 million** in 2018 (**20.1%** effective rate) compared to **$11.4 million** in 2017 (**63.4%** effective rate); the 2017 rate was significantly higher due to a one-time **$6.6 million** expense from remeasuring deferred tax assets following the enactment of the Tax Act[276](index=276&type=chunk) [Asset Quality](index=68&type=section&id=Asset%20Quality) The Corporation's asset quality in 2018 showed a decrease in allowance for loan losses to **$34.0 million**, a significant drop in provision to **$11.0 million**, and improved nonperforming assets in retail banking to **$1.7 million** Allowance for Loan Losses Activity (in thousands) | Description | 2018 | 2017 | | :--- | :--- | :--- | | Beginning Balance | $35,726 | $37,066 | | Provision for Loan Losses | $11,006 | $16,435 | | Net Loans Charged Off | ($12,709) | ($17,775) | | **Ending Balance** | **$34,023** | **$35,726** | - The consumer finance segment's allowance for loan losses decreased by **$1.4 million**, and its provision for loan losses decreased by **$5.3 million** in 2018 compared to 2017, primarily due to purchasing loans with higher credit metrics and lower charge-offs[315](index=315&type=chunk) Nonperforming Assets - Retail Banking Segment (in thousands) | Metric | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Nonaccrual loans | $1,464 | $5,272 | | OREO | $246 | $168 | | **Total Nonperforming Assets** | **$1,710** | **$5,440** | - The decline in nonaccrual loans in the retail banking segment was primarily due to the resolution of a single commercial relationship that had a carrying amount of **$3.80 million** at year-end 2017[332](index=332&type=chunk) - Troubled debt restructurings (TDRs) decreased significantly to **$5.45 million** at year-end 2018 from **$10.90 million** at year-end 2017[341](index=341&type=chunk)[511](index=511&type=chunk) [Financial Condition](index=84&type=section&id=Financial%20Condition) As of December 31, 2018, total assets were **$1.52 billion**, with net loans at **$1.03 billion**, deposits at **$1.18 billion**, and shareholders' equity at **$152.0 million**, reflecting growth driven by commercial and construction lending Balance Sheet Summary (in thousands) | Account | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | Total Assets | $1,521,411 | $1,509,056 | | Loans, net | $1,028,097 | $992,062 | | Securities (AFS) | $214,910 | $218,976 | | Total Deposits | $1,181,661 | $1,171,429 | | Total Shareholders' Equity | $151,958 | $141,702 | - Loan growth from 2017 to 2018 was primarily driven by commercial and construction lending in the retail banking segment, reflecting additions to the lending team and strong market demand[356](index=356&type=chunk) - The Corporation's primary source of funds is deposits, which grew to **$1.18 billion**, with a notable **$23.7 million** increase in non-interest bearing demand deposits[406](index=406&type=chunk)[407](index=407&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=106&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The Corporation's primary market risk is interest rate volatility, managed through simulation and Economic Value of Equity (EVE) analysis, showing sensitivity to both upward and downward rate shifts - The Corporation's main market risk is interest rate volatility, which it manages through asset/liability strategies and simulation modeling[451](index=451&type=chunk)[452](index=452&type=chunk) Interest Rate Sensitivity Analysis (as of Dec 31, 2018) | Analysis Type | +200 BP Shock | -200 BP Shock | | :--- | :--- | :--- | | 1-Year Net Interest Income (in %) | +5.42% | -8.86% | | Economic Value of Equity (EVE) (in %) | +7.98% | -17.04% | - The company uses interest rate swaps as cash flow hedges to convert variable-rate trust preferred capital notes to fixed rates and also uses back-to-back swaps to offer fixed rates to commercial borrowers while maintaining a floating rate for the bank[464](index=464&type=chunk)[466](index=466&type=chunk) [Financial Statements and Supplementary Data](index=109&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the Corporation's audited consolidated financial statements for the three years ended December 31, 2018, including balance sheets, income statements, and cash flows, with detailed notes on accounting policies, regulatory capital, and segment reporting [Consolidated Financial Statements](index=109&type=section&id=Consolidated%20Financial%20Statements) As of December 31, 2018, the Corporation reported total assets of **$1.52 billion**, net loans of **$1.03 billion**, total deposits of **$1.18 billion**, and shareholders' equity of **$152.0 million**, with net income of **$18.0 million** Consolidated Balance Sheet Highlights (Dec 31, 2018) | Account (in thousands) | Amount | | :--- | :--- | | Total Assets | $1,521,411 | | Loans, net | $1,028,097 | | Total Deposits | $1,181,661 | | Total Liabilities | $1,369,453 | | Total Shareholders' Equity | $151,958 | Consolidated Income Statement Highlights (Year Ended Dec 31, 2018) | Account (in thousands) | Amount | | :--- | :--- | | Net Interest Income | $81,521 | | Provision for Loan Losses | $11,006 | | Noninterest Income | $25,758 | | Noninterest Expenses | $73,732 | | **Net Income** | **$18,020** | [Notes to Consolidated Financial Statements](index=114&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures on significant accounting policies, loan portfolio, securities, deposits, borrowings, derivatives, employee benefits, regulatory capital (Bank 'well capitalized'), and segment financial results - Note 1 outlines significant accounting policies, including the methodologies for the allowance for loan losses, impairment of securities, goodwill, and accounting for acquired loans[488](index=488&type=chunk) - Note 15 details regulatory capital requirements; as of December 31, 2018, C&F Bank was categorized as "**well capitalized**"; the Corporation itself is no longer subject to consolidated capital requirements as it qualifies as a small bank holding company[650](index=650&type=chunk)[651](index=651&type=chunk) - Note 18 provides a breakdown of financial results by business segment, showing revenues, expenses, and net income for Retail Banking, Mortgage Banking, and Consumer Finance[701](index=701&type=chunk)[703](index=703&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=173&type=section&id=ITEM%209.%20CHANGES%20IN%20AND%20DISAGREEMENTS%20WITH%20ACCOUNTANTS%20ON%20ACCOUNTING%20AND%20FINANCIAL%20DISCLOSURE) The Corporation reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None[728](index=728&type=chunk) [Controls and Procedures](index=173&type=section&id=ITEM%209A.%20CONTROLS%20AND%20PROCEDURES) Management concluded the Corporation's disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with an unqualified audit opinion from Yount, Hyde & Barbour, P.C - Management concluded that the Corporation's disclosure controls and procedures were effective as of December 31, 2018[729](index=729&type=chunk) - Based on the COSO 2013 framework, management assessed and concluded that the Corporation's internal control over financial reporting was effective as of December 31, 2018; this assessment was audited by Yount, Hyde & Barbour, P.C., who issued an unqualified opinion[731](index=731&type=chunk)[732](index=732&type=chunk) [Other Information](index=176&type=section&id=ITEM%209B.%20OTHER%20INFORMATION) The Corporation reports no other information for this item - None[741](index=741&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=176&type=section&id=ITEM%2010.%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) Information regarding the Corporation's directors, executive officers, Section 16(a) compliance, and the Audit Committee is incorporated by reference from the 2019 Proxy Statement - Information for this item, including details on directors, executive officers, and corporate governance, is incorporated by reference from the definitive 2019 Proxy Statement[743](index=743&type=chunk) [Executive Compensation](index=176&type=section&id=ITEM%2011.%20EXECUTIVE%20COMPENSATION) Information regarding executive and director compensation, as well as the Compensation Committee Report, is incorporated by reference from the 2019 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2019 Proxy Statement[746](index=746&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=176&type=section&id=ITEM%2012.%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20STOCKHOLDER%20MATTERS) Information regarding security ownership by certain beneficial owners and management, as well as details on equity compensation plans, is incorporated by reference from the 2019 Proxy Statement - Information regarding security ownership and equity compensation plans is incorporated by reference from the 2019 Proxy Statement[747](index=747&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=177&type=section&id=ITEM%2013.%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) Information regarding related party transactions and director independence is incorporated by reference from the 2019 Proxy Statement - Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the 2019 Proxy Statement[749](index=749&type=chunk) [Principal Accountant Fees and Services](index=177&type=section&id=ITEM%2014.%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) Information regarding fees paid to the principal accountant and the Audit Committee's pre-approval policy is incorporated by reference from the 2019 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2019 Proxy Statement[750](index=750&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=178&type=section&id=ITEM%2015.%20EXHIBITS%2C%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, subsidiary lists, auditor consent, and CEO/CFO certifications - This section provides a list of all exhibits filed with the Form 10-K, including corporate governance documents, material contracts, and required certifications[753](index=753&type=chunk) [Form 10-K Summary](index=181&type=section&id=ITEM%2016.%20FORM%2010-K%20SUMMARY) This item is not applicable to the report - Not applicable[757](index=757&type=chunk)